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Bailey reveals negative interest rates being considered to help recovery

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  • 28/05/2020
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Bailey reveals negative interest rates being considered to help recovery
Negative interest rates is still one of the options the Bank of England (BoE) is considering to help Britain’s economy recover from the coronavirus pandemic, the bank’s governor has said.

 

Writing for the Guardian, Andrew Bailey said: “In view of the risks we face, it is of course right that we consider what further options, such as cutting interest rates into unprecedented territory, might be available in the future. 

However, Bailey added that the bank would likely turn to quantitative easing to support the economy as he warned the risks attached to negative rates would need to be “considered carefully” 

The current Bank Base Rate is 0.1 per cent, after the central bank made two surprise cuts at the start of the coronavirus crisis.

Since then comments have circulated about whether the bank would consider the unprecedented step of cutting its main rate into negative territory to aid any economic recovery.

 

‘Longer and harder recovery’ 

Bailey also warned the economy could face a tougher rebound from the pandemic than expected. He wrote: “The risks are undoubtedly on the downside for a longer and harder recovery.” 

He said there was reason to believe the economy could bounce back quicker than past recessions, but that would depend on how measures were eased, consumer caution and how much long-term damage there is to the economy. 

“We have seen some uptick in road travel since social distancing measures were eased earlier this month. Most other indicators remain at subdued levels – most likely because it is too soon to expect to see any meaningful impact,” Bailey said.  

“However, it is also possible that the pace at which activity recovers will be limited by continued caution among households and businesses even as official social distancing measures are relaxed.” 

 

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